Correlation Between Rea and Farm Pride

Can any of the company-specific risk be diversified away by investing in both Rea and Farm Pride at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Rea and Farm Pride into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rea Group and Farm Pride Foods, you can compare the effects of market volatilities on Rea and Farm Pride and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Rea with a short position of Farm Pride. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rea and Farm Pride.

Diversification Opportunities for Rea and Farm Pride

0.15

Correlation Coefficient

Rea  Farm Pride

Average diversification

The 3 months correlation between Rea and Farm is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Rea Group and Farm Pride Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farm Pride Foods and Rea is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Rea Group are associated (or correlated) with Farm Pride. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farm Pride Foods has no effect on the direction of Rea i.e., Rea and Farm Pride go up and down completely randomly.

Pair Corralation between Rea and Farm Pride

Assuming the 90 days trading horizon Rea is expected to generate 288.32 times less return on investment than Farm Pride. But when comparing it to its historical volatility, Rea Group is 2.48 times less risky than Farm Pride. It trades about 0.0 of its potential returns per unit of risk. Farm Pride Foods is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  13.00  in Farm Pride Foods on December 20, 2024 and sell it today you would earn a total of  10.00  from holding Farm Pride Foods or generate 76.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Rea Group  vs.  Farm Pride Foods

Rea Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rea Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Rea is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Farm Pride Foods

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Farm Pride Foods are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, Farm Pride unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rea and Farm Pride

The main advantage of trading using opposite Rea and Farm Pride positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rea position performs unexpectedly, Farm Pride can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Farm Pride will offset losses from the drop in Farm Pride's long position.

The idea behind Rea Group and Farm Pride Foods pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..